F-1 ACCOUNTING CHANGES

Question 1

Q: Name the three types of accounting changes.

FAR 1-23

Answer 1

• Change in an accounting principle
• Change in accounting estimate
• Change in accounting entity

Question 2

Q: How is a change in accounting principle reported?

FAR 1-24

Answer 2

• Cumulative effect of change is included in the retained earnings statement as an adjustment of the beginning retained earnings balance of the earliest year presented.
• Prior-period financial statements are restated, if presented.

Question 3

Q: What are the special changes in an accounting principle?

How are special changes in accounting principle reported?

FAR 1-25

Answer 3

• A change to LIFO from another method of inventory pricing under U.S. GAAP.
• Any other change in which a cumulative effect adjustment is considered impractical to calculate.

Special changes are reported prospectively (like a change in estimate).

Question 4

Q: How is a change in an accounting estimate reported?

FAR 1-26

Answer 4

• Prospectively
• The effect is shown in the current and/or future periods that are affected by the change
• Financial statements are not restated

Question 5

Q: Under U.S. GAAP, how is a change in the accounting entity reported?

FAR 1-27

Answer 5

• All current and prior period financial statements presented are restated.

Question 6

Q: How are error corrections reported?

FAR 1-28

Answer 6

• Reported as prior period adjustments to retained earnings and all comparative financial statements presented are restated.